My favorite fast-food franchise is Sonic. I don't care for the drive-in but I do love the unique style of food. Sonic is one of those places that when I do not live in an area served by them, and I happen to go on vacation, I MUST eat there. When I talked to other young people in the 16-25 demographic, they also love to eat Sonic on vacation, and one friend (18 years old) actually made a 2 hour road trip to a Sonic one night.
I feel that Sonic has a lot of room to grow in the US due to the uniqueness of their food. I pulled up a bigcharts outline of historical data since inception 18 years ago versus McDonalds, and Sonic experienced a huge boom of about 2000% above inception price during the mid 2000s. Since then it has severely declined, likely due to a poor economy and reduced number of franchisee investors.
I have not yet reviewed their annual reports, as I am fairly new to that and it will take me a few hours. I would like to list my rationale for why this may be a good company to invest in, depending on the results of my accounting review.
1) The big players in fast food franchises (Burger King, Wendys, Taco Bell) are very expensive and McDonalds I believe is not taking new franchisee members unless you have the right contacts. If Sonic is a smaller player, it's likely they are cheaper to buy into. This is a topic for research to compare buyin costs and contract restrictions for Sonic versus other names.
2) The big players in fast food are highly saturated with little room to grow. Sonic has very low penetration in the US and could potentially expand with the right franchisee owners and marketing.
3) The stock has a low volume and appear to be extremely volatile - suggesting that tracking it over a 6 month period might allow a savvy investor to buy in at a relative low point and hold it for a few years.
4) Sonic pays no dividends so it is suitable for taxable investing being more efficient than a high yielding stock. Additionally, since it is a risky investment, being in taxable allows one to capture tax savings in the greater than likely event of a loss.
I think this type of thread with the new relaxed rules on individual stock discussion could be very useful if we keep them filled with good information and few tripleB jokes.
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tripleB said:I feel that Sonic has a lot of room to grow in the US due to the uniqueness of their food. Since this is the central point of your post, please explain it. Perhaps it's obvious to those who have been there, but I drive by a few every day, and always figured it was yet another place to buy hamburgers and hotdogs.
marketingmike said:Best of breed in fast food is probably MCD, but they yield 3.5% or so. Not sure why you're afraid of dividends, btw. It's not that he's afraid, he's simply educated.
You knock dividend paying stocks and then recommend a company like SONC? Do you know companies that pay dividends are typically the most profitable companies that are so confident in their cash flows they afford to make the payouts? SONC is a risky stock at best. I don't konw why you are so focused on taxes. But did you ever stop to consider if you purchased shares of XYZ and made a profit selling, you would need to pay something called capital gains taxes? Any form of income is taxable. SONC reported their Q4 earnings today; they are down year over year. Regardless of the state of the economy that is a huge minus for what you are hoping is a "growth" stock.
2 - The market penetration issue is a little questionable. They are not unique; all the competitors you named can more or less be considered substitutes and are everywhere. Usually you would say minimal pentration for products that aren't yet widely available or widely in use. A good example would be car naviagation GPS. Just think 3 years ago how few people had them. Aftr a few holiday seasons now it seems everyone has one. That was an untapped market.
3 - This statement has no value. Low volume and volatility do not make this stock a better/worse investment.
4 - So this is a positive? No dividend so I'm not getting additional income. Risky stock so I can write off more capital losses? The principal amount of your investment will in most likelihood be higher than the tax benefit you receive.
CMG is very risky also, but a much better choice than SONC. Maybe even a PNRA. The product differentiation helps (penetration issue). Even WEN is having trouble competing with MCD.
SONC just opened a location near me in the northeast. I'm curous to see how it does in the winter months.
Oh BTW, I own MCD shares. Every quarter their company pays me some cash, but I don't actually do any work for them, I just collect the money. They call it a dividend. The amount of cash they are paying also keeps increasing every year. In DEC they will pay me 10% more than what they paid me in JUN and SEP.
TheMeliorist said:tripleB said:I feel that Sonic has a lot of room to grow in the US due to the uniqueness of their food. Since this is the central point of your post, please explain it. Perhaps it's obvious to those who have been there, but I drive by a few every day, and always figured it was yet another place to buy hamburgers and hotdogs.
I probably won't provide a whole lot of insight as to the stock...but I live in Oklahoma (where Sonic originated), and of course Sonic is everywhere in the city and virtually every little town has a Sonic. So basically I'm used to seeing Sonic everywhere too.
However, Sonic is VERY popular when the company enters new markets. When I lived in Nebraska a few years ago, Sonic opened its first locations in the area and they were packed around the clock; I've heard it's the same thing in other areas. Even though the novelty might slightly wear off, I would imagine that Sonic locations would be able to still remain profitable in these new markets, especially when there's not a lot of locations in an area. I don't know how exactly their franchise agreements work...if a location does very well, how much of the reward does Sonic reap and how much does the franchisee reap?
And there are a number of markets where Sonic has no locations; Washington, DC area off the top of my head (the closest location is in Fredericksburg, about 1.5-2 hrs away!) I'm not sure as to whether they are planning to enter these areas or why they wouldn't...I would imagine that they would do very well, since it seems like they do national TV advertising and have decent brand recognition. (At least I recall seeing Sonic ads on TV in Northern Virginia.)
scottxmso said:I would imagine that they would do very well, since it seems like they do national TV advertising and have decent brand recognition. When I hear "Sonic", even on their national TV ads, I think of the hedgehog rather than burgers.
I live in an area where Sonic has come to in the last year. Before then the closest one was more then 2 hours away, which my friends and I have considered many times. However, when the first one open near me, they were packed, but now noone goes there. They built one closer to me after that, it was packed, at first. I think it is too much of a novelty for people around me because they kept airing commercials for it. Now that it is close, people dont go anymore, and there food is not all that great compared to Wendys and MCD.
Message edited by: Ryan431101111 on 2009-10-20 23:24:10 CDT
To answer the question about why I liked Sonic so much - it's their breakfast which they serve all day. They serve lunch and breakfast all day. I never ate their lunch. But their breakfast is an egg sandwich on buttered toast. So think about the worst part of McDonalds and Burger Kings breakfast - the bread part. The biscuits or mcmuffin bread is sometimes too hard or just not tasty. Sonics is real bread they toast and put butter on. Super unhealthy but soooo tasty!
It also feels like real food. McDonalds feels like they unfreeze it and sell it to you - which Im pretty sure thats how it works. Sonics feels like they actually cook the food and prepare it like a diner would. Maybe they dont, but I get the impression based on the way the food tastes that it does.
I think only McDonald's food is worse than Sonics, although I like their drinks. Honestly once you get past the uniqueness of the drive in concept(the food is not that unique), there is not too much of a reason to go back. I have noticed the same thing as Ryan in regards to Sonic openings. Packed at first, but pretty quickly business slows down.
I think this thread is funny...I live in a small town outside of Tulsa, and all we have on our side of town is a Sonic. Don't get me wrong, I'm glad we have it or we'd have nothing...but it's funny to think of people driving two hours just to eat at one. My husband hates their hamburgers. Their breakfast burritos are pretty good...and they have the best soft drinks...you can have any kind of drink you want: cherry coke, peach sprite, melon ocean water, you name it! They have really good sweet tea, as well as peach and raspberry teas. Their frito chili pie wraps are good too. Needless to say, not the healthiest place to be eating...oh, and we have an Arby's...woo hoo.
Oh, and they have happy hour every day, even weekends, which offers 1/2 price drinks and slushes.
Message edited by: danceteammom on 2009-10-21 01:44:32 CDT
The first Sonic in Michigan opened a year or two ago and for the first few months it had hours long lines of cars backed up throughout an adjoining meijer parking lot all hours of the day and night. They had to keep multiple freezer trailers on premises to keep up with demand. As someone who had been known to drive 3-4 hrs to the nearest locations in Indiana or Ohio, I was very pleased to see them come. But without the rarity factor, I haven't been to Sonic in months... just not the same when it's available 15 minutes away.
I'm not a sonic fan - the ones in my area seem to do a pretty low volume of business and are known for their slow service, a killer (IMO) for lunch and dinner crowds. They'll never be one of the big players unless they become more efficient.
That's my fundamental analysis - I have no idea of the technicals - perhaps someone could post some industry numbers/ratios of the big guys and contrast them to Sonic.
ETA: I think we've got three in a 'metro' with approximately 500k in the midwest, all within the last 5 years or so roughly. The one that I drive by on the reg is pretty slow (both operationally and traffic wise - the location isn't great though).
Message edited by: jcole21 on 2009-10-21 08:14:17 CDT
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